Yesterday, I met with a Captain from Atlantic Southeast Airline (Delta Connection). As soon as he walked in the door, he handed me an article from USA Today about a new book by Justin Fox. Justin Fox was unknown to me but the title of his book, "The Myth of the Rational Market," quickly caught my eye.
After our meeting, I read the article in full. In the article, written by freelance writer Richard Eisenburg, we see that Mr. Fox has spent years tracing the evolution of the Efficient Market Hypothesis. This hypothesis says stock prices are random, can't be predicted based on past movements or publicly available information, and are in some fundamental sense, right. His conclusion is that hiring a mutual fund manager to beat the market is a loosing game
. Evidence of this is in 2008 when active managers in theory should have beat the market but instead most lost more than the S&P 500
's decline of 38%.
This article coming to my attention this week plays perfectly with our quote of the quarter from an anonymous Fortune Magazine Writer. "By day we write about "Six Funds to Buy NOW!"... By night, we invest in sensible index funds. Unfortunately, pro-index fund stories don't sell magazines." It is great to know that more professionals are joining the indexing revolution.